Weichai Power Co., Ltd. Business Report FY ended Dec. 2017

Financial Overview

(in million CNY)

FY ended Dec. 31, 2017

FY ended Dec. 31, 2016

Rate of change

Factors

Sales

151,569.39

93,183.52

62.66%

-The heavy-duty truck market exhibited an obvious trend of recovery by the implementation of the new antioverloading policies, the fostering of PPP (Public Private Partnership) projects, and the acceleration of fixed asset investments.

Operating profit

10,384.90

4,118.31

152.16%

-

Ordinary profit

10,522.27

4,637.65

126.89%

Net profits

9,178.37

3,596.25

155.22%

-The Company reported sales of 370,000 units of heavy-duty truck engines, representing a year-on-year increase of 86.9%, and a market share of 33.1%, maintaining its leading position in the industry.

-Shaanxi Heavy-duty Motor Company Limited, a controlling subsidiary of the Company, reported an aggregate sales of 149,000 units of heavy-duty trucks for the year, representing a year-on-year increase of 81.3%, maintaining its position as the top fourth player in the heavy-duty truck market of the PRC.

-Shaanxi Fast Gear Co., Ltd., a controlling subsidiary of the Company, has aggregate sales of 835,000 units of gear boxes, representing a year-on-year increase of 66.8%.

Recent Development of Subsidiary

-On December 21, 2017, the Company announced that, in 2017, it sold 360,000 heavy-duty engines and 78,000 light-duty engines, up 85% and 18% over the previous year, in respective order. Based on the results, the company has set its sales target for 2018 to 380,000 heavy-duty engines, a 5% increase over the previous year, and 100,000 light-duty engines, up 28% also compared to last year. Its sales in 2017 exceeded Chinese yuan (CNY) 200 billion and profit before tax CNY 10 billion, while the 40% of the sales and the 30% of the profit were from its overseas businesses. (From a press release on January 16, 2018)

Acquisition

-The Company will invest USD 60 million to acquire shares in Power Solutions International Inc., a Nasdaq-listed company, and become its largest shareholder. The two companies will form a strategic partnership and closely collaborate on areas including product development, procurement, sales, and services in North America and China. They will also enhance cooperation in the fields of high-power stationary engine and advanced gas engine development. (From a press release on April 10, 2017)

Strategic partnership

-The Company signed an alliance agreement on innovation projects with a Canadian corporation, Westport Fuel Systems Inc., on December 21, 2017. The two companies are going to jointly develop natural gas engines that use high-pressure direct-injection technology in two phases. The project aims to realize local production. In the first phase, they are going to develop 2.0 versions of China 6 high-pressure direct-injection natural gas engines that increase heat efficiency to 42.5% from 39%. These engines will lower the gas consumption by 20%. The second phase involves the development of the 3.0 versions of the high-pressure direct-injection technologies that can improve the heat efficiency to 45% from 42.5%. This means the improvement of 40% compared to the current standard for the gas consumption. The Company currently has a 70% share in the market of natural gas engines for heavy-duty trucks. (From some releases on December 22, 2017)

-On November 21, 2017, the Company and Robert Bosch AG signed a comprehensive strategic cooperation framework agreement in Stuttgart, Germany. The main content of the strategic cooperation between the two parties include:

2. Help build the Company into a world-class, leading digital demonstration plant in China and improve the level of intelligence and automation in the plant in the era of Industry 4.0.

-On November 16, Shaanxi Fast Gear Co., Ltd., a controlling subsidiary of the Company, and Dongfeng Automobile Co., Ltd. agreed on strategic partnership at Wuhan. Both sides cooperate on products such as light trucks, medium-sized trucks, buses, and New Energy Vehicles as well as promoting exchanges of technology and exploring markets.

Outlook for FY ending December 2018

-Sales for 2018 is expected to be 166.7 billion CNY increased by 10% on YoY basis (From the Company's annual report).

R&D Expenditure

FY ended Dec. 31, 2017 (million CNY)

FY ended Dec. 31, 2016 (million CNY)

FY ended Dec. 31, 2015 (million CNY)

R&D Expenditure

5,646.57

3,559.67

3,250.79

Ratio of R&D expenses to operating income

3.73

3.81%

4.41%

R&D structure

-In 2017, the Company had 6,107 R&D staffs.

R&D Facilities

-The Company has R&D centers in China and Austria.

-On November 20, 2017, the Company held a ceremony to mark the opening of Weichai Power (DE) Science and Technology Innovation Center in Aschaffenburg, Germany. On the same day, the company also signed a basic agreement with AVL, an authoritative engine research institute based in Austria, on a plan to establish a joint science and technology innovation center. (From a press release on November 20, 2017)

Product Development

-In 2017, the Company had the following key R&D projects.

WP13 Euro VI diesel engine

WP3N Euro VI diesel engine

M3000 new product

Capital investment projects for FY2017

(in million CNY)

Project

Budget

investment in 2017

Progress

Test Center construction of Weichai Power

942.31

12.38

99.77%

Weifang Power Global Accessories Distribution Center Project

419.62

17.05

34.42%

-In 2017, the total investment in the new projects reached CNY 5.2 billion, increasing 6.2%.

Investment

-On March 29, 2018, a subsidiary of the Company, Hande Axle (Zhuzhou) Gear Co., Ltd., held a groundbreaking ceremony for a new drivetrain component plant. The new plant will be built on a site of 266,670 square meters in the Jinshan Science and Technology Industrial Park, Hetang District, Zhuzhou City. The company anticipates the investment in the project will reach Chinese yuan (CNY) 260 million. The plant is going to produce axle gears, drive axles, gears for electric parts, and other drivetrain components. When the construction completes, the company is expected to generate sales of over CNY 3 billion. (From a press release on March 30, 2018)

-On March 5, 2018, Yangzhou Economic Development Zone held a ceremony to commemorate the new agreements, the launch and the completion of several significant projects. The Company’s WP3 engine plant requires an investment of CNY 460 million in total. The new plant is going to produce 100,000 engines that meet China V and higher emission standards. It expects to generate sales of CNY 4 billion and profit of CNY 150 million. (From some releases on March 6, 2018)

-On February 5, 2018, the company signed an alliance framework agreement with the government of Weifang, on the potential investment of CNY 50 billion in the construction of a new industrial park for the new energy vehicle power industry. The city hopes to accelerate the formation of a new energy vehicle industry group of worth CNY 100 billion in total based on this industrial park. (From some releases on February 6, 2018)

-On September 13, 2017, a joint venture between the Company and Minsk Automobile Plant (MAZ) held a groundbreaking ceremony for its new engine plant at the “Great Stone” China-Belarus Industrial Park in Minsk, Belarus. The total investment is USD 50 million, and the new facility will be built on a site of 33,000 square meters. The plant is scheduled to be completed by the end of 2018. (From some releases on September 15, 2017)